EU wheat surges to record as supplies continue to tighten
Head of Commodity Strategy
Summary: Following on from the recent surge in fuel and gas prices, another and equally worrying rally is currently taking place across some of the world's key food staples, most notably wheat where the price of high protein milling wheat in Paris has reached record levels. The rally has been driven by a potent combination of tight supply following a troubled growing season in North America, rocketing fertilizer prices and strong pent up demand from key buyers in the Middle East and North Africa
Following on from the recent surge in fuel and gas prices, another and equally worrying rally is currently taking place across some of the world’s key food staples. Most notably wheat where the price of high protein milling wheat in Paris earlier today breached the record high from 2008 at €295.5 per metric tons, while over in the U.S. the cost of Chicago wheat trades above $8 per bushel for the first time since 2012.
Paris Milling wheat trades at record levels, thereby exceeding the high levels that was partly to blame for the Arab Spring uprising a decade ago.
A poor harvest in North America together with a 14% year-on-year decline in exports from Russia, the world’s largest shipper, has triggered increased demand for European sourced wheat, and with the prospect for another potentially challenging crop year in 2022, caused by a returning La Ninã weather phenomenon and high fertilizer costs, some of the major importers have recently been stepping up their pace of purchase.
These among others include China as well as countries in the Middle East and North Africa. As an example, Saudi Arabia this weekend booked 1.3 million tons of wheat in a tender, according to Bloomberg almost double the amount expected. Top importer Egypt which so far has trailed its buying pace from last year by more than 20% has stepped up its purchase activity after recently having declined the prices being offered. A sign that countries not only in North Africa but elsewhere as well need more supplies to cool local food prices, and to secure supplies ahead of winter.
The US Department of Agriculture in its latest update from October put world wheat ending stocks at 277 million tons compared with 321 million tons a year ago. The next update from the USDA will be released on November 9 and prior to that the UN FAO will publish its monthly food price index this Thursday. The index which comprises 95 price quotes across five different categories from vegetable oils, cereals, sugar to dairy and meat reached a ten-year high in September, representing a year-on-year increase of 32.7%.
Adding to the current unease about the prospect for the winter and spring production of wheat and other key crops, has been the recent surge in the cost of fertilizer. The market has been hit hard by the natural gas crunch which in Europe has forced a number of nitrogen-fertilizer plants to halt or reduce production. A gauge of western European prices for ammonia, used to make nitrogen fertilizer, has recently surged to a 13-year high above $900/tons, close to triple the average price seen during the previous five years. These developments raising the risk for either a lower usage of fertilizer or a switch to less fertilizer intensive crops.
With buyers increasingly competing for supplies the market will look for some relief from the upcoming in harvests in Argentina and Australia, taking place from now until January. The outlook for production in both countries look promising with the Argentine crop expected to reach 19.8 million tons (Source: Buenos Aires Grains Exchange) and 32.6 million tons in Australia (Source: Abares), with is just 2% below last season’s record output.
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)